All companies have stakeholders, which often have competing interests. In this article, Nancy May, President of Boardbench Cos. LLC., provides her thoughts on where corporate leaders should focus first, to ensure better outcomes for their companies, shareholders, and all stakeholders.

According to a study by PWC, 94% of public companies regularly conduct an evaluation of their board. Since the NYSE requires all its listed companies to conduct some form of board evaluation (NASDAQ does not, but recommends it as good governance) this number is not a surprise. Unfortunately, both listing agencies are silent as to what an evaluation should be, what form it should take, or how it should be conducted. Small wonder therefore, that an “evaluation” can take almost any form, from an informal discussion about how the group is doing, to a full, detailed, peer-to-peer 360 degree assessment. For some directors, such a fully revealing look can be quite uncomfortable.

There are important question shareholders, boards, the media, and the public should be asking when it comes to CEO pay, but it’s not necessarily “how much”. In her April 6, 2013 article for the New York Times, If Shareholders Say ‘Enough Already,’ the Board May Listen Gretchen Morgenson writes, “Last year, the median chief executive at a United States company with more than $5 billion in revenue received about $14 million, 2.8 percent more than in 2011, according to an annual pay analysis conducted by Equilar. The 2012 increase, though relatively modest, still represents a raise for most of those who inhabit the corner office (and whose companies had filed the data by the end of March)…. Do this year’s figures show any evidence of progress toward a new pay paradigm? You know, where the gap between the compensation of executives and workers narrows, or where company directors put shareholders’ interests before those of the hired hands?” Continue reading “It is Absolutely All Relative” »

Well, “reining in” of executive pay might be a bit of an exaggeration, but there is no question that the Chairman’s role and other board members of Wall Street firms have lucrative pay packages. And over the past several months, or even years, with a growing portion of director pay made in stock (and with share prices for these firms soaring), director pay has increased. But the bigger question is not “how much” but “how and why”.

As Michael Graham shared in his recently published book Board of Directors Governance and Rewards, “We believe that boards don’t get the respect they deserve for the success of the businesses they oversee, but neither are they held much accountable when the businesses they oversee flounder… If the business strategies work, then the CEO should get credit for execution and the Board for foresightedness (not just the credit for hiring the right guy). If business strategies fail then the CEO should carry the blame for poor choice of strategy or poor implementation and the Board for failure to appropriately examine the plans (not just the blame for overpaying the CEO).”

And speaking of how CEO pay drives behaviors, the same is true for director pay, but for directors there is a different angle. Directors (much like US congressmen) set their own pay. It is part of their responsibilities for corporate governance. Therefore board governance and board pay cannot be decoupled. Further, the most important consideration for both governance and pay is the idea of contribution: how does the board contribute to the company and how does each director contribute to the work of the board, and how these contributions drive board pay.

There is a wide spectrum of board contribution levels from “hands off” to “hands on.” In Grahall’s ground breaking Board of Directors Research Series we found that a board’s relationship with the company can be measured and arrayed to give a quantitative understanding of its “contribution” level. Grahall identified 40 variables which are gleaned from proxies to represent the degree of contribution of each board.

With this large number of variable, there is a nearly infinite number of combinations and permutations of the influencing factors that set the threshold conditions for board governance and reward program success. Board governance and reward program design needs to be an active, dynamic, adaptive, and “situational” effort. Where there are different levels of contribution, the board reward levels should also be different.

Pay must be equal to contribution, and contribution must be aligned with governance, and governance aligned with shareholder interest. So if director pay appears high it is only “too high” if the contribution is less than the pay should demand. The reward strategy needs to be consistent with the level of contribution. High contribution should generate high compensation and vice versa.

Joann Lublin wrote a very interesting article for the Wall Street Journal recently, titled Season of Shareholder Angst: U.S. businesses are bracing for a noisy proxy-voting season this year, although we think the anxiety may be felt more fiercely by board members than by shareholders. In her article, Ms. Lublin covers a variety of topics weighing heavily on the minds of boards and shareholders alike, including say on pay, political contributions, succession planning, board elections and environmental concerns.

Say on pay has been in the headlines for years. It was a campaign issue in the 2008 presidential elections and we have been discussing this subject in our blogs for that long as well. The Dodd Frank Act mandated that all public filers hold “say on pay” votes in 2011, so this proxy season has companies scrambling to make recommendations to shareholders on the frequency of these votes. Continue reading “Boards’ New Mantra: Communicate” »

Joanne Lublin’s article in the Wall Street Journal, Using a Board Seat as a Stepping Stone, quotes Susan Stautberg, co-founder of OnBoard Bootcamp as saying potential director candidates should “…downplay their usual aggressiveness during board interviews because a director must be a good listener…Boards value teamwork, diplomacy and collaboration as well.”

In our experience, the best directors are more like supreme court judges – good questioners first; good listeners second. Unfortunately, some Boards seem to be the embodiment of the proverbial “Three Wise Monkeys,” unwilling to recognize anything damaging or detrimental in the decisions and actions of management. Continue reading “Great Corporate Governance Starts with Capable Directors” »

We noticed that the Forum for Corporate Directors recently hosted the “7th Annual Directors’ Institute to Prepare Directors for Change in the Boardroom by Addressing the Consequences of New Governance Policies”. According to the press release, the 2 day conference was to focus on “the most timely and critical issues facing today’s boards of directors.” Quite frankly we were pleased to see that one of the panel topics was “Do You Really Have the Right Board?” We think that if boards truly asked themselves this question, the answer for many companies going through change would be a resounding “NO”. Continue reading “Putting a Price on Corporate Governance: Does Your Board Add To Your Value Chain?” »